At Teradata's Information Economics conference in Edinburgh this week I heard perhaps five or six excellent presentations on the future of CRM, and this editorial is going to try to synthesise the thinking that came out of those presentations and other discussions at the conference.
Let me start by outlining some of Professor Stephen Garelli's (Director, World Competitive Yearbook; professor at IMD and University of Lausanne) thoughts – at the macro-economic level. He gave a far-reaching and witty review of the world economy today and a forecast for the next fifty years. However, I will highlight only a few of the insights he gave us, focusing on the current recession and the likely impact on business.
The world economy is sick. It entered into recession in 2001, and it is by no means certain that it will start to prosper again quickly. There are definite grounds for a pessimistic outlook, in particular, profitability is generally low and debt is very high (e.g. the communications industry). On the plus side, many company's inventories do need to be replenished, and the markets are looking for good news. Perhaps the most likely scenario is a fluctuation between recession and growth over the coming period, as the positive and negative aspects of the economy come into focus. The real wildcard is the price of oil. A significant variation in oil prices has a large impact on the world economy and obviously the Middle East situation needs to be watched carefully.
In this economic climate, and with the high competitiveness of the current environment, companies will find survival difficult. The major opportunity for cost reduction is in the area of transaction productivity. For example processing transactions represents 40% of the total cost for GE, and in the auto industry it takes, on average, 42 days to deliver a car. The breakdown is as follows: 2 days to manufacture; 5 days to deliver; and 35 days administrative processes. The points that Professor Garelli made which I thought of most relevance to us in the CRM industry were the following.
Firstly, a company can only differentiate itself in the marketplace in one of two ways: product innovation through technology, or customer intimacy. Product innovation through technology is a huge gamble and difficult to maintain in the long-term, so we are seeing a move from product competitiveness to customer relationship competitiveness.
Secondly, and perhaps more importantly, companies can only make significant profits when prices are not transparent and customers are locked in. CRM has an obvious role in trying to lock customer in, though it is hard to see how the price transparency that is so helped by the Internet can do anything other than increase.
Sir Brian Pitman, ex-chairman of Lloyds TSB group, currently chairman of Next and a major European business leader, in the main concurred with this analysis though he saw the two opportunities to compete as product differentiation or operational efficiency - perhaps including customer intimacy in this second area, as he saw CRM as a hugely significant development.
In such challenging times, he believes that companies have to set themselves extremely challenging objectives. At Lloyds TSB he followed the example of Coca-Cola by aiming to double the shareholder value every three years, much to the initial surprise or even indignation of his board colleagues.
What I found most interesting was Sir Brian's approach to organisational change. It has become a truism that adopting CRM means changing the organisation. The only problem with this is how do you do it? I believe there are change management consultants who are supposed to be able to help you, but I've never come across a credible one in the projects I've worked on. Sir Brian's recipe is relatively simple. You have to win the hearts and minds of your colleagues. To win their minds, you have to have a concrete, fireproof, logical case for what you are proposing, but this is by no means enough. People not only have to accept your argument, they have to believe in their hearts that the change proposed is required or even inevitable. The only way, Sir Brian believes, that you can get that belief is through many discussions in small groups with the individuals concerned. This makes sense to me, but as a CRM programme director, it means you need the CEO or a powerful board member on your side and committed to devoting significant effort to driving through the changes required. Key to actually then delivering is to ensure that you can report on the impact of the changes you are making, ideally on a weekly basis, so that managers have the information they need to adapt and meet their objectives.
If this sets the general economic and corporate background for the requirement of CRM, Professor Mohan Sawhney, (Kellogg School of Management) explored the changes necessary for an organisation to become customer-centric. Historically, many companies have adopted one of two approaches. Firstly, a marketing-led approach which conducts needs and benefits-based customer segmentation, and develops new customized offerings for specific segments. This often leaves sales organised around products, and technology and operations find it difficult to deliver on the new propositions.
Alternatively, an IT-led approach emphasises on CRM, contact centres, and business intelligence to improve operational and analytical customer-facing capabilities. However, there is often inadequate customer understanding to capitalise on the analytics and the technology frequently cannot be leveraged to create integrated offerings.
I guess we all know CRM programmes which fit into one or other of these categories, or sometimes both! In my own experience there has been a preponderance of IT-led projects.
Professor Sawney tries to resolve this dilemma by borrowing the 'middleware' concept from IT to separate the front-end customer-facing services from the back-end operational processes. Whatever you do, don't break up the functional or product silos. Make them permeable through information technology and information sharing. He envisaged a CRM programme consisting of activity in three major areas:
- At the customer end, the Chief Marketing Officer leads a programme providing a single face to customers by decoupling customer offerings from individual products.
- The CIO leads a technology programme which bridges system silos by unlinking customer-facing applications from operational infrastructure – sounds like data warehousing and middleware to me.
- The COO leads a programme to ensure customer focus with product excellence by decoupling customer expertise from product and functional expertise.
Finally the CEO coordinates all three programmes.
To make these changes demands real commitment, and perhaps because this level of commitment is not often present we don't see the number of successful CRM programmes that we should.
Professor Sawney had much of value to say about all three of these programmes, though we do not have room to cover them here. We are in discussions with Teradata to provide CRM-Forum members with access to his full presentation. More soon I hope.
Let me, however, give one example from the lower-level, particularly dear to my own heart. Sawney suggests you think about what business you are in. This may seem obvious but what he's really asking you to consider is what customer needs you are meeting, rather than what products you are selling. For example, what business is Kodak in? They are not in the photographic industry, but the memories business. A car manufacturer isn't in the car business, but the personal mobility business (interesting that Ford has purchased Kwik-fit the exhaust repair and tyre business); a greeting card manufacturer isn't in the cards market, but in the 'personal expression' business. Finally, a big part of what I was trying to say in last week's editorial, The best bank for CRM, retail banks are not in the business of checking, savings, and loan accounts, but in the business of helping people manage their financial affairs (at least that's what I think they should be doing). If you apply this needs-based approach to your business, and think about it seriously, it provides a way of developing the new customer value propositions that are a key source of ROI from the changes implemented through your CRM programme.
While we're on this more personal dimension, I was most interested in a presentation by John McKean (Executive Director, CIBC) who focused on treating customers as human beings. We hope to publish a presentation from John outlining his approach, in the meantime let me give you a couple of examples of John's thinking that I found illuminating.
In this age of price transparency and similar products customers are highly influenced by how companies treat them. According to McKean, 70% of the customer's buying decision is based on how the business treats them, and yet less than 20% of the business's resources are invested in that process. In a similar vein, as more transactions are undertaken online, McKean believes that a transaction which takes place with another human being (face-face or via a call centre) has seven times more impact on customer relationship than a transaction which uses as self-service electronic transaction (on the Net or via an ATM, for example). This is hard to reconcile with the growing shift to self-service, though perhaps we only expect 'good process' when we interact with a machine, but want the 'human niceties' to be observed when interacting directly. Certainly it highlights the requirement to focus more on the niceties of human-human contact.
Turning to the e-channel, Professor Jim Norton (Executive Chairman, Deutsche Telekom UK) brought us up-to-date with how rapidly e-business is developing. E-business, of course, has gone through an even larger slump in Gartner's technology adoption curve than CRM has. Norton argues this is more to do with market perception than reality. Garelli told us that markets are excessive - they over-react. In Jim's words, they got it wrong on the upside, during the dot.com boom, and now they're getting it wrong on the downside. E-commerce is growing rapidly, but not so much in the B-C area, where the press and perhaps the markets focus, but in the B-B sector. UK E-commerce projections demonstrate this clearly:
|UK E-Commerce revenues:||B-C||B-B|
Where personal consumers are finding it difficult to trust online transactions, businesses are quietly getting on and doing it.
The e-commerce facility furthest along the technology adoption curve is, in Jim's view, customer self-service, and he makes an interesting point which ties in with the customer research we've highlighted recently. The biggest change in the business world that has made the most money in the last fifty years, is not the development of the PC industry, but the introduction of self-service in, for example, supermarkets. People want low time-cost self-service, but if they get conventional service, they expect it to be excellent and to meet the 'human niceties'. There's a funny dichotomy there.
After these high-level strategic concerns, I was pleased to get down to the more practical issues of how you get return on investment from CRM, and how you go about tackling the steep learning and development curve of adopting CRM. One of my objectives in attending the conference was to catch up on where Teradata were. I've had no practical experience of implementing a Teradata-based solution, but had come across them a long time ago when they evaluated porting to their hardware a multi-channel campaign management that I was the architect of. At that time, I'd been impressed by the MPP architecture of the box, and its appropriateness for CRM applications, but hadn't had a chance to catch up with recent developments.
Frankly, my expectations were low – one doesn't expect a hardware manufacturer to have a good focus on providing a real solution to a business problem – usually the tin box looms too large in the equation; I was pleasantly surprised. I had the opportunity to talk with their CTO, their CRM director, and spent some considerable time with Ron Swift – VP Strategic Customer Relationships (thanks Ron), and came away with the view that they seem to have combined the hardware and software expertise with the business knowledge to help companies get value from their offerings. I am sure there are some 'buts', there always are, but I didn't find them in my three days at the conference.
I was most impressed with a 3-hour tour-de-force by Ron Swift on Accelerating Customer Relationships, which focused on strategies for delivering ROI from CRM. I haven't the space to describe in detail Ron's presentation, but if you're interested you can buy his book on the subject in the Teradata storefront. What impressed me was, firstly the recognition that companies are in very different stages of the development of CRM; a well-thought through route map for moving through the those different stages, and a range of products and services which could help you through the transition ranging from industry-specific logical data models, to industry-specific business-impact models which should accelerate the identification of tangible business benefits (and hence ROI) on both the cost side and the revenue side. In addition Ron walked us through the analytics required to support just about every aspect of CRM. It seems here was a supplier who appears to have recognised that to sell their product they need to understand the customers' requirements. Of course, this needs to happen not only in a conference, but also in real-life projects. They're definitely worth a look if you need their sort of expertise.
So how do I summarise what came out of these three days for me? Despite the current disillusionment with CRM (normal at this stage in the technology-adoption curve), and the currently high failure rate of CRM projects reported by Gartner and others, the adoption of CRM is a business imperative that cannot be ignored given the economic environment we're likely to face over the coming years.
The insights from those early projects are available to us all, and the groundwork has been done to increase the success rates of further efforts in this area.
We should not let the high failure rate eclipse the success stories. As always, I'd point at Dell and First Direct, but there are others just as good. Walmart is a case in point, and in the global financial services sector we could point to Royal Bank of Canada or SBC in telecommunications. Other examples of perhaps smaller companies include Blockbuster Video or Hallmark Cards. We hope to be able to bring case studies from some of these organisations over the coming weeks to help you learn from their successes as well as others' failures.
The economic situation demands the adoption of CRM. The technology is there to support it. We need to improve our customer value propositions, and change our organisations so that we can benefit from it.
As always we'd like to hear your comments. Make them below or e-mail me at mailto:[email protected]
For more on this topic, and in particular obtaining ROI, see the following week's editorial, The future of CRM – focused on ROI, at /cgi-bin/item.cgi?id=79931